STUDY A NEW EUROPEAN UNION DEVELOPMENT COOPERATION POLICY WITH LATIN AMERICA

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2 DIRECTORATE-GENERAL FOR EXTERNAL POLICIES OF THE UNION DIRECTORATE B POLICY DEPARTMENT STUDY A NEW EUROPEAN UNION DEVELOPMENT COOPERATION POLICY WITH LATIN AMERICA Abstract This study contains an analysis of the key principles of the European Union s development cooperation policy with Latin America. The following issues are of particular importance: i) The relevance of cooperation with middle-income countries, especially those in Latin America and the Caribbean. ii) The objectives that the EU s development cooperation with Latin America and the Caribbean should pursue. iii) The alignment of the regional integration process with the wide range of existing realities and strategies in Latin America and the Caribbean. iv) The promotion of social cohesion policies as one of the core components of the EU s development policy. v) The strategies complementary to the EU s development policy and South-South cooperation. EXPO/B/DEVE/FWC/ /Lot5/18 December 2011 PE ST/ EN

3 Policy Department DG External Policies This study was requested by the European Parliament's Development Committee. AUTHOR(S): MORAZÁN, Pedro, (Project Director), Economist, SÜDWIND Institute, Germany FIAPP, International and Ibero-American Foundation for Administration and Public Policies, Madrid, Spain SANAHUJA, José Antonio, Professor of International Relations, Universidad Complutense de Madrid, Spain AYLLÓN, Bruno, Researcher (IUDC-UCM), Universidad Complutense de Madrid, Spain RESPONSIBLE ADMINISTRATORS: Mario NEGRE, Jesper TVEVAD Directorate-General for External Policies of the Union Policy Department WIB 06 M 051 rue Wiertz 60 B-1047 Brussels Editorial Assistant: Györgyi MÁCSAI LINGUISTIC VERSIONS Original: ES, Translations: FR DE EN ABOUT THE PUBLISHER Manuscript completed on 20 December European Union, 2012 Printed in Belgium ISBN: Doi: /75557 This study is available on the Internet Copies can be requested by from: DISCLAIMER Any opinions expressed in this document are the sole responsibility of the author and do not necessarily represent the official position of the European Parliament. Reproduction and translation for non-commercial purposes are authorised, provided the source is acknowledged and the publisher is given prior notice and sent a copy. 2

4 A new European Union development cooperation policy with Latin America CONTENTS EXECUTIVE SUMMARY 7 INTRODUCTION THE DEVELOPMENT POLICY OF THE EUROPEAN UNION IN THE CONTEXT OF BI-REGIONAL RELATIONS OBJECTIVES AND PRIORITIES OF EUROPEAN UNION COOPERATION IN LATIN AMERICA IN THE CONTEXT OF THE EU-LAC SUMMITS REVIEW OF EXTERNAL COOPERATION INSTRUMENTS AND THE INTRODUCTION OF NEW FINANCING MECHANISMS EU DEVELOPMENT POLICY TOWARDS LATIN AMERICA IN THE CONTEXT OF THE ECONOMIC CRISIS IN THE DISCUSSION ABOUT AID FOR MIDDLE-INCOME COUNTRIES RESPONDING TO THE CHALLENGES OF POLICY COHERENCE FOR DEVELOPMENT AND THE MDG/ACCRA AGENDA FOR ACTION THE NEW EU ASSISTANCE PARADIGM (INCLUSIVE GROWTH) AND THE EU-LAC STRATEGIC ASSOCIATION CONCLUSIONS AND RECOMMENDATIONS REMARKS THE PROMOTION OF SOCIAL COHESION A CONCEPTUAL APPROACH TO SOCIAL COHESION SOCIAL COHESION IN THE NEW DISCOURSE ON THE DEVELOPMENT OF LATIN AMERICA STRATEGIES FOR THE INTEGRATION OF SOCIAL COHESION IN LATIN AMERICAN PUBLIC POLICIES THE CONTRIBUTION OF THE EUROPEAN UNION S DEVELOPMENT POLICY TO SOCIAL COHESION IN LATIN AMERICA CONCLUSIONS AND RECOMMENDATIONS COMMENTS THE EUROPEAN UNION AND THE PROMOTION OF REGIONALISM AND REGIONAL INTEGRATION IN LATIN AMERICA EU AND LATIN AMERICAN INTEGRATION: IDENTITY, VALUES AND INTERESTS ASSOCIATION AGREEMENTS AND COOPERATION FOR DEVELOPMENT: SUPPORT TOOLS FOR REGIONAL INTEGRATION ASSOCIATION AGREEMENTS: AN INCENTIVE AND TOOL TO SUPPORT INTEGRATION? REGIONAL COOPERATION AND SUPPORT FOR INTEGRATION 78 3

5 Policy Department DG External Policies 3.5 CYCLICAL CHANGE IN REGIONALISM AND LATIN AMERICAN INTEGRATION TOWARDS A RENEWED AGENDA FOR SUPPORT FOR INTEGRATION AND REGIONALISM: CONCLUSIONS AND PROPOSALS COMMENTS THE PROMOTION OF SOUTH-SOUTH COOPERATION GLOBAL TRANSFORMATIONS AND EMERGING COUNTRIES FEATURES OF SSC. THE EXPERIENCES OF LATIN AMERICA SSC WITHIN THE CONTEXT OF THE EFFECTIVENESS AGENDA: THE EU AND SOUTH-SOUTH COOPERATION AND TRIANGULAR AID IN LATIN AMERICA CONCLUSIONS AND RECOMMENDATIONS REMARKS CONCLUSIONS AND RECOMMENDATIONS 132 BIBLIOGRAPHY 137 AUTHORS AND REVIEWERS 149 4

6 A new European Union development cooperation policy with Latin America LIST OF ABBREVIATIONS AAA ACP AL INVEST ALBA TCP LAC FTAA ALOP AMM ODA GBS SBS CABEI EIB IDB CAD ADC CAN CARICOM CCDT CDS EC CELAC ECLAC CESCAN PCD CSN SSC TCDC DCI/ALA CSP RSP PD EACES ECOSOC MS. ENPI PRS EAGGF FIIAPP FLACSO IMF Accra Agenda for Action The African, Caribbean and Pacific Group of States European programme to support the internationalisation of small and medium enterprises in Latin America. Bolivarian Alliance for the Peoples of Our America Peoples Trade Treaty Latin America and the Caribbean Free Trade Agreement of the Americas Asociación Latinoamericana de Organizaciones de Promoción al Desarrollo [Latin American Association of Promotion Organisations] Macroeconomic High Authority Official Development Assistance General Budget Support Sector Budget Support Central American Bank of Economic Integration European Investment Bank Inter-American Development Bank The OECD s Development Cooperation Directorate Andean Development Corporation Andean Community Caribbean Community and Common Market Code of Conduct on Complementarity and Division of Labour South American Defence Council European Commission Community of Latin American and Caribbean States Economic Commission for Latin America and the Caribbean Economic and Social Cohesion of the Andean Community Policy Coherence for Development Comunidad Suramericana de Naciones [South American Community of Nations] South South Cooperation Technical Cooperation among Developing Countries Development Cooperation Instrument/Latin America and Asia Country Strategy Paper Regional Strategy Paper Paris Declaration Andean Economic and Social Cohesion Strategy United Nations Economic and Social Council Member States of the European Union European Neighbourhood and Partnership Instrument Poverty Reduction Strategies European Agricultural Guidance and Guarantee Fund International and Ibero-American Foundation for Administration and Public Policies Facultad Latinoamericana de Ciencias Sociales [Latin American Faculty of Social Sciences] International Monetary Fund 5

7 Policy Department DG External Policies FOCEM MERCOSUR Structural Convergence Fund FSAP Financial Sector Assessment Program GRUCA Group of Central American diplomatic representatives to the EU HIPC Heavily Indebted Poor Countries DCI Development Cooperation Instrument FDI Foreign Direct Investments IIRSA Initiative for the Integration of Regional Infrastructure in South America IPA Instrument for Pre-Accession Assistance LAIF Latin American Investment Facility (MIAL, Spanish) OMC Open Method of Coordination Mercosur Southern Cone Common Market MFF Multiannual Financial Framework LAIF Latin America Investment Facility OECD Organisation for Economic Cooperation and Development MDG Millennium Development Goals OAS Organization of American States ILO International Labour Organisation WTO World Trade Organization NGO Non-Governmental Organisation UN United Nations CAP Common Agricultural Policy EP European Parliament GDP Gross Domestic Product ISDP Integrated Social Development Plan NIP National Indicative Programme RIP Regional Indicative programme LDC Least Developed Countries UNDP United Nations Development Programme LIC Low-Income Countries MIC Middle-Income Countries SME Small and medium enterprise RED Renewable Energy Directive GNI Gross National Income EEAS European External Action Service SICA Central American Integration System SIEPAC Sistema para la Interconexión Eléctrica de América Central [Electrical Interconnection System for Central American Countries] RMS Regional Monetary System GSP Generalised System of Preferences TFEU Treaty on the Functioning of the European Union EU European Union UNASUR Union of South American Nations UNIFEM United Nations Development Fund for Women URB-AL Regional Cooperation Programme of the European Union with Latin America 6

8 A new European Union development cooperation policy with Latin America EXECUTIVE SUMMARY The development policy of the European Union in the context of bi-regional relations In political terms, the entry into force of the Lisbon Treaty in December 2009 is the most important milestone in the positioning of Europe as an actor, with its own voice, in international cooperation. The primary objective of development cooperation policy, defined in Article 208 of the Treaty on the Functioning of the European Union (TFEU), is the reduction and, in the long term, the eradication of poverty. Thus, in view of its high poverty rates, LAC should be an area of priority for European Official Development Assistance (ODA). However, the European Consensus on Development indicates that the priority for ODA is support to the least developed and other low-income countries (LICs) to achieve more balanced global development. On the other hand, in paragraph 61 of the Consensus, perspectives of enormous relevance to the majority of LAC countries are left open: 61. Support to middle-income countries remains equally important to attain the MDGs. Many lower MICs are facing the same kind of difficulties as LICs. In institutional terms, the Code of Conduct on Complementarity and Division of Labour (CCDT), approved in 2007, details the process of strengthening the sole policy of international cooperation. Both instruments have direct consequences for the EU-LAC bi-regional process, insofar as they require, in practice, that ODA be more heavily concentrated in fewer countries, and in selected sectors and on selected issues (Freres, 2011). In addition, the Lisbon Treaty brings about institutional changes that, in the short term, will be determinant for the development of ODA with LAC. Some experts believe that the relocation of what is currently the Directorate of Latin America into a Directorate for the Americas at the EEAS may sharply decrease LAC s relevance in EU development policy (see Freres, 2011; Sanahuja, 2010d). The concentration of ODA in LICs is drawing reactions and complaints in LAC. In the words of the Executive Secretary of the ECLAC, it may be necesario repensar la categoría de ingreso medio' --en la que se clasifica a la mayoría de los países de América Latina-- como criterio para la asignación de Ayuda Oficial para el Desarrollo [ necessary to rethink the category of middle income in which the majority of Latin American countries are classified as a criteria for assigning ODA ]. It is worth noting that the Commission, with the European Consensus and the CCDT in hand, has sought to adapt its cooperation programmes to the diversity of Latin America by making proposals for the future. However, the lack of one or several clear interlocutors in LAC makes it difficult to define shared objectives in the pillar of ODA. Review of cooperation instruments, the new financing mechanisms Promoting social cohesion and supporting regional integration stand out as the primary objectives defined at the EU-LAC Summit in Vienna in 2006 for this quinquennium. In addition to these issues, the DCI also includes governance, higher education and sustainable development. The DCI defines geographic areas and specific objectives based on the general objective of European cooperation. However, the discrepancy between the unilateral definition established according to Community rules and instruments (DCI and CDT) and the bi-regional EU-LAC summits remains to be resolved (Sanahuja, 2010d). Not infrequently, the summit process raises questions about the policies already established by Community instruments. For the period, the international framework for the programme was formed by the Joint Declaration on the European Consensus on Development of 2005 in relation to the MDGs, and the 7

9 Policy Department DG External Policies Vienna Summit Declaration of 2006, which together defined three areas of priority for the Strategic Partnership: multilateralism, social cohesion and regional integration. The priorities are also based on the combination of various instruments (seven large thematic programmes and national and regional programmes). The negotiations on the multiannual financial framework (MFF) are of vital importance to the future of development policy with the countries of Latin America. ODA is included in current financial perspectives under Heading 4: External actions. Decisions about essential matters such as amounts, sectors and the content of instruments will be the subject of complex debates, given the current precarious fiscal situation of the Member States, which also affects the financial situation in the Union. The Commission proposes a reduction of EUR 88.5 million in the amount devoted to cooperation instruments, especially for geographic programmes such as this. In recent agreements, there has been a strong tendency to emphasise programme-based aid within the framework of poverty reduction strategies (PRS). This is relevant to Bolivia, Honduras, Nicaragua and Guyana. Also of great relevance is general budget support (GBS) and sector budget support (SBS). Programme-based assistance represents more than 5 % of the assistance directed to LAC. This is because the region offers greater capacity for absorption than Sub-Saharan Africa. Country Strategy Papers (CSPs) and Regional Strategy Papers (RSPs) are, in our opinion, the most appropriate starting point for horizontal cooperation. Both of these instruments are drawn up through a process of dialogue with each recipient country s national government and other relevant actors. They define the specific objectives and the sectors of intervention of EU cooperation. To date, however, they have not been sufficiently applied to society in general, so as to make demands of civil society as well. EU Development Policy towards Latin America in the context of the economic crisis In 2002, the EU committed to a collective increase of ODA. Those commitments were later broadened and approved by the European Council in The EC s development package (the 12-point action plan and the 2010 progress report) was adopted in April 2010 in the midst of the global economic crisis. However, the Commission s ambitious goals had already been toned down by the Council s conclusions of 14 June 2010, which served as the basis for the EU s official position at the UN Summit on the MDGs in September 2010 in New York (Morazán/Koch, 2011). In this year s report, the EC states that the negative economic growth rates in the EU as a result of the crisis and the austerity measures introduced by the Member States led to the reduction of ODA. All of this contributes to a negative trajectory in meeting the MDGs. What has happened with the ambitious agenda of the Consensus in its first five years? From the quantitative point of view, the balance is, in a manner of speaking, negative. In 2010, the EU Member States did not manage to meet the intermediate target (0.56 %), reaching just 0.42 % of ODA/GNI. Unless something extraordinary occurs and the current situation does not give any indication that it will the EU will not meet the target of 0.7 % by The risks of a significant reduction in ODA to LAC are enormous and have grown even larger as a result of the political and economic crises in North Africa. Twelve-point EU action plan and LAC Initially, and logically, it was believed that the 12-point action plan approved in April 2010 should serve as the basis for the 2010 EU-LAC Summit. However, ODA commitments to the region have not surpassed the limit of EUR 350 million annually, and payments have remained at around EUR 300 million during the past three years. If bilateral support from Member States is totalled, the EU is LAC s first source of assistance. However, the importance of European ODA in meeting the MDGs in LAC is not merely quantitative. As is well known, the MICs of LAC pose a challenge for the MDG agenda, 8

10 A new European Union development cooperation policy with Latin America precisely because the majority of the poor live in these countries, and because the desired results entail much more complex cooperation processes than the traditional ODA instruments. On the other hand, many of the innovative instruments currently under discussion have enormous potential for use in LAC. More than a sudden withdrawal of ODA, LAC needs the three pillars of the strategic association to be treated differently, so that the objective of reducing poverty, which is in the interest of both regions, can be met. To this end, it is necessary for the EU to recognise strategic areas of mutual interest in order to achieve the MDGs with a renewed development policy. Responding to the challenges of policy coherence for development and the MDGs With the Lisbon Treaty, coherence has come to occupy a more central place in EU foreign policy, becoming a legal requirement both for the High Representative and for the Commission. The Consensus emphasises that the commitment to promoting policy coherence for development (PCD) is not only a key political commitment in the context of the MDGs, but also has a firm legal basis in the EC Treaty establishing the European Community (Article 178). The Communication from the Commission to the Council, the European Parliament and the European Economic and Social Committee emphasises that EU policies in areas such as trade, agriculture, fisheries, food safety, transport and energy have a direct bearing on the ability of developing countries to generate domestic economic growth, which is at the basis of any sustained progress towards the MDGs. (European Commission, 2005a) The PCD is also an essential tool for the EU to comply with MDG 8. MDG 8 seeks to develop a global partnership for development. The presence of the EU and three Latin American countries (Mexico, Brazil and Argentina) in the G-20 may be an opportunity to find common ground, so that PCD can be implemented jointly. The Latin American countries insistence on a deeper macroeconomic dialogue is a sign of the existing concerns. The establishment of the Latin American Investment Facility (LAIF) is, therefore, a step forward in the implementation of PCD. Although there have been positive signs, agriculture is an area where the EU has enormous problems in achieving PCD with some LAC countries. The new EU assistance paradigm and the EU-LAC Strategic Association The EU formulates the paradigm of inclusive growth in the Green Paper on Development Policy that was submitted for discussion in early The message of the Green paper could be summarised as: towards more growth, less poverty. However, it is well known that the persistence of poverty in the context of growth varies from country to country and from region to region. Consequently, the Green Paper s four objectives insist on the relevance of development cooperation in the face of the community s current challenges: climate change, the financial crisis and the food crisis. The EU s application of the development cooperation policy demonstrates that support for social cohesion can contribute positively to the implementation of policies that lead to respect for and compliance with basic labour standards in LAC beneficiary countries. Development policy can thus contribute to the implementation of corporate social responsibility. The issues of labour standards and social protection systems are closely related to the issue of gender equality. On this issue, too, the Commission has been able to implement instruments that have had a great deal of impact. Recommendations The eradication of poverty should be kept as the primary objective of EU development policy toward LAC. The opportunity presented by the current crisis in Europe should be recognised; revising the phased plan and adapting it to the bi-regional summits could be a first step. Heed LAC s calls for 9

11 Policy Department DG External Policies agricultural policy to be consistent with ODA. The commitment of ODA to MICs should be maintained. It is necessary to seek a better division of labour among Member States of the European Union and to make use of the new room to adapt ODA to the changes in LAC. MDG 8 should be placed at the centre of the EU s cooperation policy with LAC, selecting areas to implement the new strategy of inclusive growth in LAC. With these changes, the Country Strategy Papers (CSPs) and the Regional Strategy Papers (RSPs) could be revitalised. The promotion of social cohesion The concept of social cohesion has been developed and incorporated in large measure in the EU acquis, by associating itself with the European social model which seeks to safeguard the social component of integration. It is, in and of itself, a key component of the process of European integration and equally important a hallmark of the EU s image in the world (Sanahuja, 2010c). In the new dialogue on economic development, social cohesion has a central role. In spite its successes in terms of economic growth, as well as a greater capacity to resist the effects of the international financial crisis, Latin America continues to be the most unequal region in the world: the richest 20 % account for 57.1 % of all income, while the poorest 20 % receive scarcely 2.9 % of the wealth (Inter-American Dialogue, 2009). Territorial inequalities, which are also enormous in number in LAC, must be considered in addition to social inequalities of all kinds. Both the United Nations Development Program (UNDP) and the Economic Commission for Latin America and the Caribbean (ECLAC) have focused their attention on the discussion surrounding the role that may be played by the state in reducing inequality and encouraging social cohesion. Indeed, the ECLAC sees social cohesion not just as a goal, but as a means to achieve balanced development. This vision is encapsulated by the ECLAC motto: growth needs equality and equality needs growth. According to ECLAC (2007), the three main vectors that lead to social cohesion are providing opportunities, developing capabilities and guaranteeing safety nets. The concept of social cohesion is highly normative in nature and thus is considered a guiding principle of public action: social cohesion is a positive condition that must be strived for in order to be achieved. This means that the vision is imbued with values and, in particular, a perspective, the focus on rights. This process involves promoting agreements or pacts (what have been called Pactos por la Ciudadanía [Pacts for Citizenship] (See FIIAPP, 2010) which facilitate policy and statutory changes to address the structural aspects that hinder the full exercise of these rights. In short, it is a matter of creating a virtuous circle: we need to invest in social cohesion to create citizenship and invest in citizenship to create social cohesion. The strategies for integrating social cohesion into Latin American public policies can be improved substantially. This involves addressing the objectives of social cohesion, developing human capital, and creating safety nets through a comprehensive social policy, in order to be able to overcome the institutional fragmentation and disjointedness that exists in many Latin American countries. The EU s development policy can contribute to social cohesion in Latin America. The European cooperation programmes supporting social cohesion have developed along two different lines: the national programmes of each country, and the regional and sub-regional programmes. In terms of regional programmes, the most significant of these, the EUROsociAL programme, grew out of an express mandate by the Heads of State and Government of the EU and Latin America and the Caribbean, who met in Mexico in May In the six years it has been in place, the programme has contributed to spreading the concept of social cohesion in Latin American societies and translating it into actual measures for strengthening institutions and developing public policies for social cohesion. 10

12 A new European Union development cooperation policy with Latin America One of the successes of such programmes is their ability to foster connections among institutions in the two regions by means of exchanges of experience; a peer learning method. In spite of the differences in focus and the distance between the two regions, an increasingly shared vision of the significance and scope of social cohesion as a key factor in the development and stability of the societies in the two regions is making headway. Social cohesion constitutes a basic component in the dialogue between the EU and Latin America within the framework of the Strategic Association between the two regions. The issue of social cohesion has acquired such relevance in bi-regional relations that it has institutionalised bi-regional dialogue on the issue in the EU-LAC Social Cohesion Forum in preparation for bi-regional summits with the aim of exchanging points of view and learning about experiences on the implementation of policies which contribute to the promotion of social cohesion. The European Union and the promotion of regionalism and regional integration in Latin America The EU s strategy of inter-regionalism was outlined by the community institutions in 1994 and 1995, and, with some adjustments and redefinitions, it has remained in force, in its basic components, up to the 2010 Madrid Summit. Like any other objective of external action, the EU s support for Latin American integration responds to a particular combination not always harmonious of interests (promoting growth and expanded markets), values (democracy and human rights) and identities (integration and social cohesion). Association Agreements: an incentive and a tool to support integration? One of the characteristics that defines the EU as a global actor and, in particular, as an external partner of Latin America and the Caribbean is its support for regional integration and broader forms of regionalism. In this sense, regional political dialogue, free trade agreements and development cooperation should all be factors that contribute to the regional integration of LAC. As regards political dialogue, an instance of particular relevance to the development of political consensus is the Euro-Latin American Parliamentary Assembly (EUROLAT). The signing of free trade agreements between the EU and sub-regional groups in Latin America and the Caribbean implies, in turn, greater economic integration within each group, to the point where they become effective regional groups. The community s development cooperation also seeks to encourage the process of economic integration through regional programmes in Central America, the Andean Community (CAN) and Mercosur. Ever since this strategy of inter-regionalism was first enacted in the mid-nineties, it has faced obstacles and difficulties, particularly in connection with relations between the EU and Mercosur. The problems of coherence are especially important in relation to trade protectionism. If the EU wants to be an external unifier of the region, it cannot be a hurdle to Latin America s greater involvement in the international market. What does the evolution of negotiations for the signing of Association Agreements show? The vision of a network of association agreements, defined by the above strategy, is close to becoming a reality: Agreements have been signed with Mexico (2000), Chile (2002), and Central America (2010). There is a Multi-party Agreement with Colombia and Peru (2010), which Bolivia and Ecuador may later join, and in 2010, the negotiations between the EU and Mercosur were reopened. All of this seems to show that setting bilateral agreements in opposition to bi-regional agreements creates a false dilemma, and it 11

13 Policy Department DG External Policies affirms bilateralism as a complement, rather than an alternative, to inter-regionalism. If the negotiations between the EU and Mercosur are concluded in 2011 and 2012, the strategic association between the EU and Latin America will be based, as was anticipated in the mid-nineties, on a broad network of association agreements and free trade areas, whether these are bilateral or interregional in nature. Association Agreements: an incentive and a tool to support integration? The negotiations to establish a network of Association Agreements between the EU and Latin America have had mixed results. This is due, in large part, to the ambivalence with which this has been carried out in practice, the problems of policy coherence in the EU, and the successes and setbacks of integration schemes in LAC. The problems of coherence are especially important in relation to the trade protectionism that affects, in particular, EU-Mercosur relations. Within the EU, there are divergent positions and interests in terms of the concessions to be made in relation to access to the agricultural market. To this, we must add the different positions within Mercosur on the issue of openness in manufacturing, services and public procurement. These factors, which are also present in the WTO negotiations, may explain the essential reason why those negotiations were suspended in Although the signing of the EU-Colombia and EU-Peru bilateral agreements on the eve of the 2010 Madrid Summit has been the subject of controversy, this may be considered an important step in the creation of a network of agreements. In any case, the agreements that have already been signed may not represent the closure of this issue. In June 2010, Ecuador formally expressed its desire to reopen negotiations and be part of the Agreement. In December of that year, the Bolivian government announced that it would reopen negotiations on the agreement, which, in the medium term, would allow the interregional approach of the relationship between the EU and the Andean group to be reestablished. The agreement with Central America signed in May 2010 and in particular the agreement that may be signed with Mercosur may compensate for the failure of the group-to-group negotiations with the CAN, and this implies a significant strengthening of the EU s regionalist strategy. Since the Madrid Summit, the positive signs for this negotiation have multiplied. The Mercosur Summit in San Juan in August 2010 has been of great importance. In short, an examination of the negotiations between the EU and the various sub-regional groups seems to demonstrate two things: first, that the possibility of signing Association Agreements continues to be a powerful incentive for integration. Second, that the limits of the EU s power as a federador externo [external unifier] may also be defined, as is logical, by the extent of each sub-region s commitment to integration, and by the role that South - North agreements with external actors, such as the United States, have within each sub-region. The cases of the Andean Community and of Central-American integration, in marked contrast, seem to indicate as much. Regional cooperation and support for integration An examination of regional strategy documents shows a highly integrated focus combining political dialogue, trade, and development cooperation and clear elements of continuity. Finally, with regard to the management of interdependencies, environmental protection, the fight against illegal drugs and the prevention of and response to natural disasters have all been maintained as priorities. Continuity has also been maintained on cross-cutting issues like gender equality and combating discrimination against indigenous persons, persons of African descent and minorities. Together with these elements, new priorities arising out of the process of EU-Latin America and Caribbean Summits of Heads of State and Government have also appeared, specifically, actions to support higher education and the 12

14 A new European Union development cooperation policy with Latin America development of the information society.however, a considerable imbalance exists between the political commitments made at the summits and the financial resources available, which have not increased. In addition, it is worth noting that the procedure of defining the strategy on the part of the EU, which is unilateral in nature in accordance with its own rules, does not adequately fit an inter-regionalist relationship model, like the summits, or the more horizontal relationship model of the new generation of association agreements adopted since The European Union has been one of the few sources of regional cooperation in LAC and the only one that engages in bi-regional cooperation. It is important to remember that regional integration is one of the eight priority areas addressed in the European Consensus on Development of Regional cooperation has been markedly asymmetrical, however, since no regional organisation has existed in Latin America, and the map of regional integration has, in reality, been comprised of four sub-regions Mercosur, CAN, Central America and the Caribbean Community and Common Market (CARICOM) as well as the specific instances of North-South integration of Mexico and Chile. Under these conditions, supporting Latin American integration is difficult, and the EU has opted for regional programmes based on thematic networks and consortiums, which mostly include decentralised actors such as local governments and universities that stimulate the dynamics of regionalisation, rather than formal, institutionalised regionalism. The creation of UNASUR in 2008 and, in particular, the appearance of the Community of Latin American and Caribbean States (CELAC) in 2011 may give rise to new possibilities for region to region cooperation on the part of the EU, to the extent that those organisations establish themselves and equip themselves with the power and tools to intensify regional cooperation or to carry out shared policies. Cyclical change in regionalism and Latin American integration Given the clear cyclical change that can be seen in regionalism and integration in LAC, it seems relevant to suggest a possible dialogue between UNASUR and the EU, as expressed in the Communication of 2009, Global Players in Partnership. This cyclical change is occurring after more than 15 years of open regionalism on the part of the majority of Latin American countries, which has, in fact, had a net positive effect in the region, especially with regard to the growth of intraregional trade at rates that exceed those of total trade. Most exports in intraregional trade are manufactured goods with higher value added. Since mid-2000, there have been signs of the collapse of the open regionalism model. Growth in interregional trade is lower than total trade. Among the causes that account for this change, the following may be mentioned: the continuing export pattern that specialises in primary products, encouraged by high demand from Asia; the low degree of complementarity of Latin America s economies; the lesser weight of intra-company and intraindustry trade as a result of the scarcity of transnational supply chains; the increased cost of transport as a result of the lack of physical infrastructure; macroeconomic instability; the persistence of non-tariff barriers; and the tendency to resort to unilateral measures in the event of crisis. ECLAC recognises that in spite of the new challenges, It is [ ] essential [ ] to deepen the regional integration of Latin America and the Caribbean, especially since intraregional trade actually encourages export diversification, favours small and medium-sized enterprises and comprises higher value added products than exports to the rest of the world. Thus, the new focus of integration could be characterised as 'post-liberal', since it attempts to transcend the model of open regionalism (Motta and Ríos 2007, Sanahuja 2010). Post-liberal regionalism, particularly the Union of South American Nations (UNASUR), appears to be establishing itself as the most recent attempt to articulate a South American regional economic and political space, and to achieve the objectives of autonomy, international 13

15 Policy Department DG External Policies involvement, economic and social development, and internal governance that have inspired Latin America s regional integration strategies from the very beginning. Post-liberal regionalism has been put into practice through the Bolivarian Alliance for the Peoples of Our America-Peoples Trade Treaty (ALBA-TCP) and the Union of South American Nations (UNASUR). Both UNASUR and ALBA-TCP are expressions of a specific interpretation of anti- or post -liberal regionalism, but neither can be considered an integration initiative in the classic sense of the term. Tensions between nationalism and regionalism are not new in the region, but the neo-nationalism that coexists with post-liberal regionalism again poses dilemmas which are difficult to avoid in the construction of effective regional institutions and frameworks. Post-liberal regionalism has a marked political component. However, as already indicated, ALBA-TCP, with its distinct ideological orientation, as well as UNASUR, which is caught between the MERCOSUR model and a North American-Pacific orientation, both give more weight to the positive agenda of integration. This agenda is centred on creating shared institutions and policies, as well as more intense cooperation in non-trade areas, which has led to the expansion of mechanisms for South-South cooperation and the emergence of a renewed peace and security agenda. There is also greater preoccupation with social dimensions and imbalances, as well as the link between regional integration and the reduction of poverty and inequality in a political context in which social justice has taken on greater importance in the region s political agenda. Thus, one of the defining characteristics of post-liberal regionalism is the development of sectoral policies that are regional in scope in various areas. Energy, for example, became a central issue of UNASUR s agenda. In this area, a clear complementarity exists between countries with reserves and those where energy shortages can be a bottleneck for growth. This potential is such that the assertion has even been made that South American oil and gas could play the role that coal and steel played in European integration. The process of creating the CELAC, a mechanism approved at the 3rd Latin American and Caribbean Summit held in Caracas in December 2011, is characterised by high levels of tension over what regional integration means. It is premature to assess the significance of this process. In any case, its eminently political nature is apparent, and it represents Mexico s return to regional affairs, as well as an attempt by Brazil to re-establish a Latin American-Caribbean regionalism that incorporates the various sub-regional groups, beyond UNASUR. (Costa Vaz 2010; Rojas Aravena 2011a, 2011b). Recommendations Integration continues to play a key role in the EU s regional strategy; as an external partner, the EU should seek a renewed strategy to support positive integration and shared policies. Sectoral policies on energy and infrastructure address common interests and thus are relevant to the EU s agenda. Greater cooperation in science and technology should be sought, along with greater emphasis on promoting the dynamics of regionalisation, support for mechanisms to correct regional asymmetries and better deployment of additional resources. Emphasis should be placed on the key role of Association Agreements, and, lastly, an agenda of expanded political dialogue. 14

16 A new European Union development cooperation policy with Latin America The promotion of South South Cooperation (SSC) The distribution of global power and the growth of emerging countries constitute two of the main changes in international relations at the beginning of the 21st century. The changes in global power dynamics, along with the ongoing diffusion of power and vertical and horizontal shifts in power, which are apparent at the global level and in the Latin American region in particular, present serious, urgent challenges for the EU. The strength of South South relations; the creation of autonomous spaces for coordination and political cooperation among Latin American countries, without European or North American involvement; and the presence of extra-regional actors (China, Russia, India, Iran) are deep transformations that challenge the EU to redefine its strategy and tools to remain a relevant actor in relations with the region. The nature and demarcation of SSC is a matter of much debate, about which no consensus exists. In terms of its main characteristics, developing countries underscore its functional approach, which is based on jointly identifying proven solutions to development problems, with an emphasis on creating and strengthening capacities. For its beneficiaries, SSC can be adapted to their priorities, whilst providing funding for infrastructure and strengthening their ability to spend when channelled through national budgets. However, a certain degree of idealisation persists, along with a notable ambiguity and laxity with regard to the definitions of SSC in terms of its scope, from the point of view of its effectiveness and the frequent comparison with North South cooperation. The increasing number of platforms for debate about SSC presents another challenge for developing countries, especially those from Latin America. They face pressure to make their cooperation practices transparent, and they experience pressure to align themselves with the consensus generated by the DAC/OECD through the Paris Declaration (PD). Characteristics of SSC: The experiences of Latin America The experiences with SSC in Latin America have been more dynamic than in any other region of the world. Some of the most significant milestones in the history of SSC have occurred in the region. The concept of Technical Cooperation among Developing Countries (TCDC) came out of the Buenos Aires Conference (1978), while the Caracas Programme of Action on Economic Cooperation among Developing Countries (1981) and the San José Plan of Action (1997), both of which were devoted to investment, trade and finance, completed the reference framework for SSC. Latin American States manage their SSC with nearby countries of particular interest to them, for cultural, political, historical or security reasons. This does not imply the absence of motives of solidarity. For example, Colombia is concentrating its SSC actions on neighbouring countries and countries in the Caribbean basin. Venezuela divides its attention between this latter approach, with Cuba as its main partner, and Central America, with a lower presence in South America, where it prioritises its political allies (Bolivia and Ecuador). Brazil is the only country in the region that shows greater diversification in its cooperation, which is aimed mainly at Latin America, without neglecting its growing presence in Africa and, to a lesser extent, Asia. By sectors of activity, in 2009, the SSC in the LAC region concentrated on economic activities (40 % of the 881 projects recorded), social activities (another 40 %) and other sectors (20 %) such as culture, gender, the environment, disaster prevention, strengthening the management of public institutions, etc. (Ibero-American Secretariat, 2010). An overview of SSC would not be complete without mentioning its importance in integration and regionalisation processes (Ojeda, 2010). This variant of SSC is used 15

17 Policy Department DG External Policies within the framework of post-liberal regionalist strategies that seek to rethink and reorient integrationist pathways in Latin America (ALBA-Peoples Trade Treaty, Mercosur, UNASUR), creating spaces for cooperation that are much more political than in the past. SSC in the context of the effectiveness agenda: It is currently difficult to confirm that the Paris Declaration (PD) is a benchmark for any type of regional coordination in Latin America (Prado, 2010). The involvement of Latin American countries in the aid effectiveness agenda has been gradual, with different positions wavering between enthusiasm and total rejection. While Venezuela is proposing a break with the traditional canons of North-South cooperation, Colombia is urging that SSC be aligned with the PD, becoming, among developing countries, one of their main drivers in the region and the world. Including the Caribbean States, only 53 % of countries in the region have subscribed to the PD. More complicated has been the result of applying the principles and mechanisms established by the PD to SSC. On this point, most Latin American countries do not classify the cooperation they offer as being part of the provisions of the PD. The case of Brazil is representative of this position, as the country signed the PD in its capacity as ODA receiver, but not at all as a country offering cooperation. In the end, there is a preference for the effectiveness of cooperation to be processed in regional platforms or in the United Nations. Argentina and Brazil are calling for these debates to be redirected to ECOSOC s Development Cooperation Forum, created in The advance of the new donors, especially China, has stirred up some concern in DAC countries regarding repercussions on the application of the effectiveness agenda. The creation of the Working Party on Aid Effectiveness (WP-EFF) within the DAC in 2003 was, in part, a response to this worry. The need for greater evidence on the effectiveness of SSC was made evident at the International Conference on Financing for Development (Doha, 2008). The United Nations recognised that the effectiveness of SSC is very limited in its analysis owing to the absence of evaluations. The great development in regard to the multilateral discussion on the role of SSC and its relationship to the aid effectiveness agenda has been the inclusion of the issue in the G-20 agenda, as well as its inclusion among the nine pillars defined in the Seoul Development Consensus for Shared Growth. The EU and South-South Cooperation and triangular aid in Latin America The EU does not have a joint vision or a clear strategic definition to enable it to structure and develop an SSC aid policy and a cooperative response to SSC with sufficient energy, not only in Latin America but also in its relations with other MICs. Upon examination of the Lisbon Treaty and the Treaty on the Functioning of the European Union, it would appear that there are no direct references to SSC or to triangular cooperation as measures or instruments for EU cooperation in development. The absence of direct references to SSC in EU texts and regulations instils the need to begin a process of reflection which could lead to its inclusion in the EU's cooperation policy. The European Commission, for its part, has gradually introduced SSC into its agenda of global cooperation and cooperation with Latin America. The regional plan with Latin America mentions SSC as a useful method to enable less able countries to benefit from horizontal or bi-regional programmes. With regard to the EUROSOCIAL programme, it recommends that it should be renewed, and that opportunities for institutional partnerships and triangular cooperation be explored. Generally speaking, the EU's involvement in triangular cooperation in Latin America derives its motivation from the role played by emerging countries which exercise a growing influence on their 16

18 A new European Union development cooperation policy with Latin America environment. Among the Member States that are most active in promoting SSC and triangular cooperation, Germany stands out for its track record. Other active community members are Spain, France, Belgium, the Netherlands, Sweden and the United Kingdom. Recommendations Begin a process of clarification over SSC and triangular cooperation; the EU should design a strategy on several levels: global, bi-regional and bilateral. The EUROLAC Foundation should incorporate a biregional research programme on SSC into its activities. Support for SSC should be included when drawing up the Regional Strategy Papers for the period. Mixed formulas that include Member States as well as the Commission could be considered. 17

19 Policy Department DG External Policies INTRODUCTION At the last EU-LAC Summit in Madrid in 2010, the heads of state of both regions reaffirmed their willingness to address the global consequences of the economic and financial crisis and to prevent such crises from unfolding again. Today, on the eve of the next Summit, due to take place in January 2013 in Santiago de Chile, Europe seems in a more fragile state as a result of the so-called 'Euro crisis'. The problems of public debt and the vulnerability of the euro are monopolising the attention of the whole of the European Union, to the extent that there is no shortage of voices saying that the entire integration project depends on how they succeed in managing this crisis. 1 It comes as no surprise that the economic crisis is not only altering the coordinates in the sphere of economics, it is also creating new demands in the area of global government that, in one way or another, have an influence on how the EU acts as a global partner, specifically with LAC. The multilateralism of the EU and its eagerness to encourage sustained, balanced economic growth mean that at the same time confidence must be restored in its institutions and, above all, in its financial markets, so it can create a new model and lead by positive example in other parts of the world. In conjunction with the economic crisis, the events in North Africa throw up new challenges that must be embraced immediately, both by the EU as a whole and by its individual Member States. The Lisbon Treaty is undergoing its first acid test, both economically (the Euro crisis) and politically (the support for democracy in the Arab countries). Both of these phenomena (the worldwide economic crisis and the movement of Arab countries towards democracy) are having a major impact upon the dynamics of EU- LAC relations. However, it is still too early to be able to weigh up the nature of these effects, particularly because they are also conditioned by how LAC reacts to the effects of the world economic crisis and, to a certain extent, the problems of the Middle East. Perhaps the definition of the guidelines of the multiannual financial framework ( ) serves as a kind of barometer for gauging the direction taken by theses new changes: In Chapter 4, The EU as a global actor, the financial budget guidelines proposed by the EU forecast growth of as little as 0.8 %, far below the 5 % average of the remaining chapters. The reduction of more than EUR 88 million from the Financing Instrument for Development Cooperation, which includes geographical programmes, is a very significant sign to LAC that the EU is facing enormous challenges in these times of crisis and that its response to them cannot always be in accordance with the long-term objectives hitherto defined. Latin America, in turn, is not immune to the risks of the crisis. In spite of the fact that, according to IMF estimates, the 4.5 % economic growth figure forecast for the region in 2011 remains solid, LAC growth could be affected by the uncertainty surrounding global recovery. The risks of contamination are pronounced, and it will not prove easy to achieve an adequate balance between these risks to avoid the crisis in circumstances which could see a fall in the price of raw materials, thereby increasing fiscal pressure. 2 While the economic policies that Latin-American countries are adopting individually may 1 e.g. 2 The director of the IMF for the Western Hemisphere, Eyzaguirre describes the situation as follows: Whereas before, when developed economies caught a cold, we would get pneumonia, on this occasion the developed countries have pneumonia, while we just catch a cold. 18

20 A new European Union development cooperation policy with Latin America impinge on their neighbours, 3 it is obvious that the economic rapprochement with LAC is a point that the EU must take into consideration in preparing the strategy for emerging from the crisis. For this reason, the economic crisis and its various effects, rather than making the reconciliation of both regions less relevant, they are lending it a fresh perspective. At issue here, among other things, is the consolidation of the commitment that was made in Madrid in 2010 to work together towards designing a new international financial architecture. This includes reforming international financial institutions, by enhancing the role and voting rights of developing countries, in exchange for a greater commitment to refurbishing the framework for regulation and international financial monitoring, which will guarantee the stability and solvency of financial systems. The question is whether the principles on which this strategic alliance was constructed can be strengthened, by combining regional integration, social cohesion, development aid and the relationship with other global actors. This study aims to convey how significant this is, by analysing four important aspects of the EU-LAC Strategic Alliance : 1. EU development policy in the context of bilateral relations; 2. The promotion of social cohesion; 3. The promotion of regional integration in Latin America; and, 4. The promotion of South-South Cooperation. The study aims to analyse the relationship between the recent behaviour of aid streams and the progress made in promoting social cohesion and reducing inequalities. At the same time, it carries out an appraisal of the processes of regional integration and the challenges posed by the latter for the EU. In addition, an analysis is made of the aggregate value of intensifying South-South relations compared with the traditional forms of development cooperation. Contributions to the Study were made by experts working at centres of study and analysis in Europe. Also, to start the discussion, experts were invited from LAC to offer their critical reflections on the points of view expressed herein. The EU s development policy For LAC, establishing the priorities of the EU with regard to the Millennium Development Goals (MDGs) proves not only a political challenge, but also a design challenge: the strategy of the European Consensus on Development to concentrate ODA in low-income countries automatically entails reducing attention to problems which the average-income LAC countries are facing. At first glance, the economic success and, in more than a few cases, the technological advance of some Latin-American countries with average and above-average incomes, makes the case for reconsidering development cooperation with this region. However, abandoning the ODA with LAC may prove incompatible with the long-term interests of the EU. The new challenges of cooperation with LAC need to be viewed through the optic of shared interests, including the following notable examples: social security, environment and protection for resources, migration, access to public goods, security, etc. Out of the resources channelled towards geographical programmes, LAC is currently provided with EUR million. The 2011 European Commission (EC) report accepts that the negative economic growth rates in the EU as a result of the crisis and the austerity measures introduced by the Member States have led to the reduction of ODA. Considering the enormous dispersal of the aid, the little progress made in the division of labour and the previously mentioned effects of the crisis, we are unlikely to see an increase in the involvement of the EU in LAC. 3 Increased protectionism in Brazil, for example, would have negative consequences for both Uruguay and Argentina, their Mercosur partners. On this point, see: 19

21 Policy Department DG External Policies A potential avenue for redressing any likely backsliding in cooperation flows may lie in strengthening the coherence of the EU s policy coherence for development (PCDs). With the Lisbon Treaty, coherence has come to occupy a more central place in EU foreign policy, by becoming a legal requirement. Agriculture is an area where the EU has enormous problems in applying PCD. As is well known, in this respect, the CAP has provided a motive for conflict between the two regions, whether in the context of the Doha Round or the negotiations for Association Treaties, particularly with Mercosur. In the opinion of Camilo Tovar, the Asociación Latinoamericana de Organizaciones de Promoción al Desarrollo [Latin American Association of Promotion Organisations], the Summits are important for political momentum and strategic direction, however, they have not provided a decisive scenario in terms of the priorities and the orientation of development cooperation. Cooperation policy has become subordinated to the commercial-economic agenda, where interests hold sway which are not always aligned with ODA principles and objectives. Tovar agrees with the ECLAC analysis about the need to rethink the average income category, and the significance for LAC in focusing attention on inequality and the relevance of the discussion on ODA with middle-income countries and the MDGs in LAC. He also believes that it is crucial to deal with the coherence of policies in favour of development, as a topic on which much remains to be done, both for the EU and LAC. Of particular relevance, in his opinion, is the relationship between development and policies covering trade, agriculture, migration, energy and the environment. In the specific case of Central America, for Carlos Umaña, international cooperation underestimated the urban dimension when it made rural poverty the focus of attention. The core problems in this region at the moment consist of public safety and violence, more so than the traditional subjects of employment, economic crisis and poverty. Their roots lie in the disruption of the fundamental social fabric, the primary and secondary institutions of society families, neighbourhoods, schools, rural communities, farms, factories and businesses the lack of social cohesion between everything that makes society work. In the case of Latin America, he suggests placing the emphasis on Objective 8 of the MDGs: develop a global Partnership for development. This means developing cooperation between the most institutional areas of the MDGs, such as democratic governance, social cohesion, the rule of law and public safety. The promotion of social cohesion The EU must not lose sight of the subject of inequality both in terms of its magnitude and its continued existence as one of the great challenges for development in Latin America and the Caribbean, not only because the region itself has begun to recognise this issue 4, but also because LAC is an important growing market for the EU. In contrast to other donors, the EU has tried to accompany Latin America and the Caribbean in the processes of building institutionalism for social cohesion. An important aspect for discussion in view of the 7 th EU-LAC Summit in Santiago de Chile is discovering how the EU can continue to support flexible instruments with Latin America, such as peer review mechanisms, in order to promote social cohesion. Latin American and Caribbean countries only count as middle-income countries by disregarding their enormous internal inequalities. The huge differences in income within the countries mean that social cohesion is the main channel open for international cooperation to reduce poverty. Creating agreements and political consensus with a spectrum broad enough to give social cohesion policies the dimensions of State, and not merely government, policy 4 See: ECLAC (2010): La hora de la igualdad: brechas por cerrar, caminos por abrir [ Time for equality: rifts to be sealed and paths to be opened ]. 20

22 A new European Union development cooperation policy with Latin America would ensure their continuity over time. This is essential for undertaking such badly needed and complex transformations, such as fiscal reforms, that are genuinely redistributive, or adapting the outlines of social protection to incorporate excluded sectors. For Martín Hopenhayn, sufficient reasons exist to justify entirely the currency and continuity of the European Union s cooperation with countries considered middle income, such as Latin American countries. To his mind, the following disquisitions may prove of use: 1. Many middle-income countries in LAC have very high levels of vulnerability, poverty and extreme poverty. 2. Key aspects of social cohesion, such as the development of capacities, access to social protection and the opportunities for productive employment are subject to high, and in many cases growing levels of segregation in the region. 3. In Latin America, there is at present a major tendency to adopt a more universal vocation in social protection. On the other hand, he identifies two systemic focal points which complement one another and explain the structural manner of the reproduction of social divides in Latin America: the first shows how the segmentation of productivity, exclusion and rifts in employment are closely related to gaps and hollows in the social protection systems. The second is due to the life cycle, that is, impermeable social grouping that prevents upward social movement. Both demonstrate the extent to which gaps and inequalities are reproduced from one generation to the next, creating the principal obstacles for social cohesion. For this reason, when thinking about social cohesion for orienting policy, it is of utmost importance to encourage highly diverse policies that break these two vicious circles. For Fabián Repetto, there remain ample questions for Latin America to answer for which this document will provide input of major relevance and importance. One method of moving towards political systems based on social cohesion, which would prove substantially greater than this sum of scattered actions, consists of putting into practice an outstandingly political strategy; this involves processing conflicts of interests and worldviews in order to achieve the following: (i) the definition of a strategic focus that will provide a guide for decisions in terms of social cohesion; (ii) the design or reformulation of social institutions and the distribution of public spending in accordance with the requirements of this focus, rooted in a solid and progressive tax basis; (iii) the prioritisation of a certain range of programmes that will nurture the priority focus, by capitalising on the lessons learned from recently generated programmes; and (iv) a selection of suitable operational management tools which in practice embody a focused social cohesion in line with the characteristics of each country. 21

23 Policy Department DG External Policies The promotion of regional integration in Latin America Together with social cohesion, support for regional integration and broader forms of regionalism is one of the most distinctive features of the European Union, in terms of international action, and in particular as a social partner of Latin America and the Caribbean. Like any other goal of external action, EU support for Latin American integration is the result of a particular combination, not always harmonious, of interests, values and identities. Close study of the most significant events the signing of the agreements of the Association with Mexico (2000), Chile (2002), and Central America (2010); the Multiparty Agreement with Colombia and Peru (2010), to which we may subsequently add Bolivia and Ecuador, and the re-opening of negotiations between the EU and Mercosur in 2010 apparently show that bilateralism is proving to be a supplement, rather than an alternative, to interregionalism. If an agreement is reached in the negotiations between the EU and Mercosur in 2012, the strategic association between the EU and Latin America will be based, as was anticipated in the mid-nineties, on a broad network of association agreements and free trade areas. Therefore, it can be inferred that one of the most significant results of the Madrid Summit in 2010 lay in reaffirming both interregionalism and the support for regional integration. It should be noted, however, that both the ambivalence that coloured how these bi-regional negotiations were put into practice and the various problems of coherence in EU policies, as well as the ups-and-downs which characterise schemes for integration in Latin America, have together had a negative impact on the alignment taking place between these two regions. These problems of coherence are especially important in relation to trade protectionism. In short, an examination of the negotiations between the EU and the various subregional groups seems to demonstrate two things: firstly, that the possibility of signing Association Agreements constitutes a powerful incentive for integration. Secondly, in marked contrast, as the cases of the Andean Community and Central-American integration suggest, the limits of the EU's power as a 'federador externo' [external unifier], would shape, as stands to reason, the scope of the commitment to integration in each subregion, in the context of their respective strategies for international involvement, and the role adopted by the south north agreements with external actors, such as the United States, or the EU itself, within such strategies. Félix Peña offers some concise, yet revealing thoughts on the present disenchantment of Latin America with the strategic association. To his mind, preparing for the Santiago Summit would require a great effort from all, particularly the European Parliament in order to go beyond a strategy ( relato [story]) concerning the strategic association of the two regions, which would correspond with a global reality that has been profoundly altered, as has been made clear by recent events. With a view towards Madrid, he asks the question: Is Brussels interested in opting for an aggiornamiento (structural change) to its strategy? His question is formed against the background of the fact that, in his opinion, LAC is monitoring the Asian experiment in regional governability with interest, including the very flexible approach taken to economic integration, based more on networks of production and on business links than supranational institutions. The impression exists that, to a certain extent, the Asian model offers more attractive components for the region than the 'European model'. Francisco Rojas Aravena indicates in his observations that the role of UNASUR and post-liberal regionalism and the role which the Community of Latin American and Caribbean States (CELAC) could play in the future may complement, rather than compete with the OAS and the other existing regional organisations. These organisations, based on a distinctly political profile, would afford a point of reference for the EU, provided it bears in mind that other actors Asian countries in particular are playing a much more prominent role in the region. Rojas Aravena also insists on a broader political 22

24 A new European Union development cooperation policy with Latin America dialogue that accords a larger portion of its agenda to issues such as migration and the reform of international institutions. Lorena Ruano offers a no less pessimistic assessment, as to her mind the results of the biregional strategy form an image of comparative failure: a very recent bi-regional agreement (with Central America) and a series of bilateral agreements with individual countries (Mexico, Chile, Colombia and Peru). There is also a strategic partnership, which is a bilateral institutionalised political dialogue with the two largest countries in the region, Mexico and Brazil. To her mind, it is vital that the EU does not lose sight of the strategies of other world powers in the region, the US and China. She also believes that it is necessary to dispense with the Association Agreements, since certain countries in the region no longer view them as a strong incentive, given that the Millennium Development Goals have no application to middle-income countries such as the Latin American countries. While also pointing towards the same restrictions, Ricardo Sennes paints a slightly more optimistic overview. Considering that the EU will play a much more restricted role of 'federador [unifier] in LAC, he makes the suggestion that the EU holds to the traditional line for which it is recognised, by supporting the process of regional convergence and integration, however with a greater focus on priority areas of interest for both regions, in order to overcome the imbalance existing between the expectations created and the resources invested. By way of example, he mentions the incorporation of infrastructure and energy as part of the integration agenda as also mentioned by Ruano and the education issue as part of social cohesion policies. Similarly, Andrés Serbin makes a favourable evaluation of the renewed dynamics of conciliation and regional cooperation which post-liberal regionalism, and UNASUR in particular, has generated. The organisation has become a notable point of reference in crisis management, such as the events in Bolivia in 2008, or between Colombia and Venezuela at different times of bilateral tension. This could also play an important role in the regional response to the financial crisis, through the ECOFIN Council. The creation of the Community of Latin American and Caribbean States (CELAC), which has been running over the course of 2010 and 2011 constitutes a major point of reference for the EU, in that it provides a new institutional architecture capable of accommodating the entire region. South South Cooperation One very important aspect to be taken into consideration with EU-LAC relations concerns enhancing relations, beyond merely trade relations, between emerging countries. The last decade has been the scene of a renewed surge in South South Cooperation (CSS) and the emergence of the G-20 as the structure of global government, and this provides some indication that the world is changing in a substantial way. Latin America is the region of the world where the SSC experiences have been the most intense and the most dynamic, and it has made progress and gained positive experiences through its involvement in regional and multilateral debate. The growing recognition of the relevance of cooperation between developing countries as part of the agenda for the effectiveness and the enhancement of SSC in Latin America is an affirmation of regional autonomy and strengthens the leadership of certain countries, with the direct effect of reducing the priority attributed to EU cooperation. Against this background, it is likely that the traditional Euro-Latin American agenda for cooperation, based on social cohesion and integration, should be revised and enriched by the incorporation of decidedly cross-cutting mechanisms based on a shared learning approach, by pooling the successful experiences from each 23

25 Policy Department DG External Policies region and by exploring complementary formulas for cooperation with the capacity to enhance respective strengths. An important call to attention is made by Juan Pablo Prado Lallande, reminding us of the enormous disparity found in the South and within the South itself in terms of politics, economies and capacities. In certain cases, this diversity may fall back on SSC in a top-down exercise of influence and power. Fernando Nivia advocates something similar where he states that the moment is right to take part in the discussion on the origins of SSC, given that in many instances the tendency in LAC is to exaggerate the discourse on altruism, when foreign policy interests are always very clear, even though many countries do not care to see this declared so openly. For Alejandra Kern, the impact of the Paris Declaration and by the entire process launched under the OECD to improve the effectiveness of aid runs through, and yet also breaks up the debate on SSC in the region. For her, the essential point of opting for multilateralism should be on the basis of defining a new strategy for cooperation between the EU and Latin America, one that raises the priority of SSC as part of the agenda and in bi-regional documents. Triangular cooperation remains for her an ample field to be explored and analysed. Generating such knowledge would help create a focus on triangular cooperation as an element of support for the SSC, by incorporating and strengthening its best principles and practices. As far as María Clara Sanín is concerned, it is important to differentiate between the priorities of aid modalities. In no way is the emphasis on social cohesion and integration compatible with SSC and triangular cooperation, since some of those subjects talk about what, while others are concerned with how. A key question lies in how the EU can supplement its current aid scheme to the region in social cohesion and integration by incorporating some tools for supporting SSC and triangular cooperation. In her opinion, Colombia has instigated a pragmatic position that forms a bridge between the effectiveness agenda for development of the OECD and SSC. In the view of Jorge Balbis, it is right to demand that the EU develop a policy for supporting SSC and triangular cooperation, not only with Latin America, but also in its relations with other MIC. However, this policy must not serve as an alibi for losing sight of the importance of North South cooperation between the EU and LAC. Philipp Schoenrock makes a similar argument and suggests that an analysis should be made of the countries with lesser and greater capacities in place to receive and offer cooperation. For Oscar Angulo, the alignment of triangular cooperation funds with a strong pivot country such as Chile, Brazil or Mexico carries the risk of favouring such countries even more over their peers in other countries. This Study should be regarded as the starting point in an open debate that enables an evaluation of biregional relations from a more realistic perspective and, above all, by taking into account existing possibilities and limitations during these times of global crisis. The idea here is to extend this debate beyond the European Parliament and to provide a means of elaborating the agenda for the Santiago Summit so that significant progress is made by both parties. Pedro Morazán 24

26 A new European Union development cooperation policy with Latin America 1. THE DEVELOPMENT POLICY OF THE EUROPEAN UNION IN THE CONTEXT OF BI-REGIONAL RELATIONS by Pedro Morazán The development policy is one of the three pillars that support the Strategic Association of the European Union with Latin America and the Caribbean (EU-LAC). As such, the development policy is part of the process of bi-regional political dialogue that began with the San José Dialogue in 1984, made official with the first EU-LAC Summit that took place in Rio de Janeiro in The bi-annual summits have since become the general framework in which to foster the process of alignment between the two regions, and where the main aspects of development policy might be defined. To conduct an analysis of the relevance, the dimensions and the basic concepts that shape the EU s development policy with LAC, the following factors need to be considered: the general objectives of Official Development Assistance (ODA), as defined in the basic documents of the EU, the tools for its The Lisbon Treaty, which incorporates the Treaty on the European Union (TEU) and the Treaty on the Functioning of the European Union (TFEU), came into effect on 1 December The new Treaty also creates the post of High Representative of the Union for Foreign Affairs and Vice-President of the Commission, whose task it is to ensure coherence in the Union s external action and to assume the responsibilities incumbent on it [= the Commission] in external relations and for coordinating other aspects of the Union's external action. The High Representative shall be assisted in this task by the new European External Action Service (EEAS). Article 208 TFEU places the Community s development cooperation policy within the context of the principles and objectives of the Union's external action. Source: EU Cooperation Guide implementation, its alignment with the objectives of international cooperation and the influence of the changing international context. 1.1 Objectives and priorities of European Union Cooperation in Latin America in the context of the EU-LAC Summits What are the general objectives of European cooperation? Beyond the expectations arising out of the Summits, the EU s development cooperation policy with LAC has been influenced by the EU s own internal institutional dynamics. In political terms, the entry into force of the Lisbon Treaty in December 2009 is the most important milestone in the positioning of Europe as an actor, with its own voice, in international cooperation. The primary objective of development cooperation policy, defined in Article 208 of the Treaty on the Functioning of the European Union (TFEU), is the reduction and, in the long term, the eradication of poverty. The Lisbon Treaty succeeded in definitively harmonising this objective by defining the strategies and the tools that will give the EU greater legitimacy as a global (multilateral) actor in ODA with the power to negotiate. This legal and institutional consolidation offers opportunities as well as enormous challenges for LAC. Opportunities, because spaces are opened up to overcome, to a large extent, the persistent diversity of geographical orientations in the flows of aid, which had not been changed by the Maastricht Treaty and which reflect historical traditions, and diverse cultural and geographical interests, which, in some cases, are divergent for certain Member States. Challenges, because the definition of strategies and objectives is strongly oriented towards the Millennium Development Goals (MDG) and the framework established in the high-level Forums on aid effectiveness. Both processes give priority to the Least Developed 25

27 Policy Department DG External Policies Countries (LDC) as a destination for ODA at the cost of Middle-Income Countries (MIC), to which most LAC countries belong. The institutional consolidation of the EU and ODA The expansion of the Union from 15 to 27 members, largely eastern European states in the process of transformation, effectively resulted in the part internalisation of development policy, and this has also had consequences for cooperation efforts towards LAC. It can be said that, while the entry of Spain into the EU was seen as greater enthusiasm in ODA for Latin America, the expansion of EU15 to EU27 has not exactly produced a revitalising impulse for this relationship. The European Consensus for Development 5 is perhaps the most palpable sign of initial enthusiasm on the part of the EU for the MDG, particularly shared by the EU15 in With the approval of this Consensus, milestones were set both for the EU as well as the Member States, and which were strongly linked to attaining the MDG. The Consensus indicates that the priority for ODA is support to the least developed and other low-income countries (LICs) to achieve more balanced global development. In this joint declaration, the EU15 committed itself to increasing the budgets allocated by its Member States to ODA to 0.7 % of the gross domestic product (GDP) by 2015, with a collective intermediary target of 0.56 % by For the fledgling Member States of the EU12, the objectives were lower and yet ambitious, given their own difficult circumstances (see table in the following chapter). This dynamic was based on the Agenda for Development Financing signed in Monterrey which, in fact, did not yet reflect the nuances in the global picture, such as the emergence of new donors, global financial crises and south south cooperation (see chapter 6). Even though its implementation is not binding for Member States, the Consensus defines a strategic line to be followed, which does not appear favourable for LAC, given that it clearly encourages the channelling of efforts towards the LAC. On the other hand, in paragraph 61 of the Consensus, strategic perspectives of enormous relevance to the majority of LAC countries are left open: 61. Support to middle-income countries remains equally important to attain the MDGs. Many lower MICs are facing the same kind of difficulties as LICs. A large number of the world's poor live in these countries and many are confronted with striking inequalities and weak governance which threaten the sustainability of their own development process. The Community therefore continues to provide development assistance based on countries' poverty reduction or equivalent strategies. Many MICs have an important role in political, security and trade issues, producing and protecting global public goods and acting as regional anchors. But they are also vulnerable to internal and external shocks, or are recovering or suffering from conflicts. The EU dedicates a percentage of ODA to the MICs which is above the average devoted by the member countries of the OECD to this group of countries. However, different priorities apply between the various Member States when it comes to implementing the consensus in this respect: while the United Kingdom focuses its efforts on the LIC, Spain does so with the MIC of LAC. Other Member States concentrate on their Mediterranean neighbours, while Turkey remains the major beneficiary of European ODA (see Gleen, 2011). In our opinion, the Consensus is maintaining its healthy level of abstraction for not inconsiderable trade risks and it behoves the LAC partner countries to make their 5 The European Consensus on Development is a joint declaration that was approved on 20 December 2005 by the three main institutions of the EU and the Member States: the European Parliament, the Council and the Commission: See: 26

28 A new European Union development cooperation policy with Latin America priorities felt, in such a way that the strategic definition allows them adequate capacity in the cooperation instruments. In institutional terms, the Code of Conduct on Complementarity and Division of Labour (CCDT) in development policy, approved in 2007, goes further in the process of strengthening the sole policy of international cooperation. Both instruments (the Consensus and CCDT) have direct consequences for the EU-LAC bi-regional process, insofar as they require, in practice, that ODA be more heavily concentrated in few countries, and in selected sectors and on selected issues (Freres, 2011). The results of the Consensus and the respective phased plan already show that there is a long way to go in defining and executing the common development policy. Not only the tension between Brussels and the capitals of the EU27 Member States, but also the new framework of EU foreign policy raise new questions. In view of the fact that many of the agreements are not binding, the Commission cannot hand out directives to Member States (see phased plan). The Lisbon Treaty brings about institutional changes that, in the short term, will be decisive for the development of cooperation policy with LAC. The majority of European experts agree that there is more uncertainty than certainty in the region (see Freres, 2011, Sanahuja, 2010d). The Treaty created the post of the High Representative of the Union for Foreign Affairs and Security Policy, currently occupied by Catherine Ashton of Britain, who has been given the reins of the European External Action Service (SEAE). On the other hand, a mingling between the powers of the High Representative and the Commissioner for Development has been identified. Indeed, it is not so much a question of organisation; above all it is a political problem: will development policy be subordinated to external policy and therefore to the strategic interests of the EU? How will the creation of the European External Action Service (EEAS) influence the structure of the delegations and, in particular, the area dedicated to development cooperation? Various experts believe that the relocation of what is currently the Directorate of Latin America 6 into a Directorate for the Americas at the EEAS may sharply decrease LAC s relevance in EU development policy (see Freres, 2011: 45/46). As such, it is clear that in the list of priorities of the EU, LAC comes after North Africa, Eastern Europe and the countries in the Persian Gulf, to mention just a few geographical areas. Until now the offices have been responsible for planning and executing the Commission s development policy as part of the Country Strategy Papers (CSPs) and the Regional Strategy Papers (RSPs), with the resulting stress normally having been placed on cooperation policy. Now that the offices of the EU are taking on the character of embassies in geographical areas, they in turn come under the control of the High Representative. Sanahuja (2010d) states that as a result, development policy could lose the independence that is necessary for it to promote its objectives of fighting poverty as an objective and a cross-cutting element of the external action of the EU.(, ). EU-LAC: more trade, less cooperation? There is no doubt that the higher objective of cooperation is consistent with the process of alignment between the two regions. In view of the high levels of continuing poverty in LAC, the relevance of ODA would be self-evident, were it not for the fact that the Consensus comprises predefined geographical priorities. What is more, this consistency was more a tacit than an explicit principle and over time, due to the concentration of ODA in low-income countries (LIC), this is generating doubts and complaints in LAC. In the words of the Executive Secretary of the ECLAC, it may be necesario repensar la categoría de ingreso medio' --en la que se clasifica a la mayoría de los países de América Latina-- como criterio para la asignación de Asistencia Oficial para el Desarrollo [necessary to rethink the category of middle 6 Answering to the former Directorate-General for External Relations of the Commission. 27

29 Policy Department DG External Policies income in which the majority of Latin American countries are classified as a criteria for assigning Official Development Assistance ]. 7 For this purpose, the implementation of the EU s global strategies as mentioned above requires greater alignment with the process of biregional summits. On the other hand, the Summits need to offer a more coherent agenda for development and regional strategies with well-defined thematic areas. ODA in the EU-LAC Summit Process At the I EU-LAC Summit, which took place in Rio de Janeiro in June 1999, objectives were agreed that were better aimed at strengthening political, economic and cultural understanding, announcing principles but without specifying priority areas in the fight against poverty. A Strategic Alliance overshadowed by the process of forming a Free Trade Agreement of the Americas (FTAA) seemed rather to point towards the search for common interests in the process of trade liberalisation initiated by the World Trade Organisation (WTO) rather than development policy. The pillar of trade took precedence over the pillar of cooperation (see Sanahuja). At the II Bi-regional Summit in Madrid in May 2002, the three main pillars of the Strategic Alliance were summarised, and this holds true today: political dialogue, trade and economic relations, and cooperation. Those first two stages saw little of substance surrounding the fight against poverty. In the subsequent process of development of this biregional process, the influence of the failed Doha Round of the WTO can be seen in terms of the trade pillar, as can the new impetus of the Monterrey process of the Declaration of Paris and Accra on the efficiency of the ODA in terms of the cooperation pillar. At the III Summit in Guadalajara in 2004, the emphasis was placed on multilateralism, regional integration and social cohesion to reduce poverty and fight against inequalities and exclusion. For the first time the theme of social cohesion was introduced as an essential feature of European cooperation with LAC. Both poverty, which then affected more than 45 % of the population of the subcontinent, as well as inequality, exacerbated by the programmes of structural adjustment as part of the so-called Washington Consensus, acted as a catalyst for cooperation. However, the fight to obtain trade preferences accentuated the differences more than the areas of agreement. In spite of everything, the subject of social cohesion adopted a nebulous form in the Summit Declaration, proposing the measure of an exchange of opinions and experiences without a specific action plan (see Fernández Potayo). The EU made available resources of EUR 30 million in the region under the EUROsociAL programme. Also, three working groups were formed on the subject, bearing in mind that the problems between the different regions strongly differed: Europe deals with the subject of the social welfare state and LAC the subject of eradicating poverty and surmounting social inequalities. This has provided a solid basis for alignment, beyond the differences in approach. There is growing conviction among both parties that European cooperation must be purely a supplement to the national efforts made in this direction. At the IV Summit in Vienna in 2006, the emphasis was once again placed on the pillar of trade rather than ODA. It was decided to commence negotiations to sign new Association Agreements between the EU and Latin America, and between the EU and the Andean Community. Perhaps it was on account of the context of international crisis and, above all, the dissimilar internal dynamics of both regions that so 7 The idea of average income conceals great disparities in the economic and social situation of the countries in Latin America, according to ECLAC: p-bottom.xsl 28

30 A new European Union development cooperation policy with Latin America little progress was achieved in the V Summit held in Lima in May The initial enthusiasm began to give way to a kind of routine realism. For the ODA there arose, however, new subjects that went beyond social cohesion and sustainable development. With the Lima Summit, talks began on food safety, democracy and human rights, in addition to the compulsory subjects of trade and regional integration. The creation of an EU-LAC foundation is perhaps the first step as part of the new realism of the Strategic Association. The creation of the EUrocLIMA joint environmental programme could also be a sign of a new orientation for the pillar of cooperation. It should be noted that with the Consensus and the CCDT in hand, the Commission has sought to adapt its cooperation programmes to the diversity of Latin America and is making proposals for the future. The latest RSPs are proof of this. With regard to the fight against poverty in the poorest countries in the region, the new strategies of Communication sent in 2009 to the European Parliament are confirmed in the Declaration of the VI Summit held in Madrid on 18 May 2010 and in its corresponding Action Plan It is very difficult to be able to determine a clear trend in bi-regional relations, particularly due to the political context in Latin America, which shows, for the moment, a highly dynamic process of redefinition and reconstruction which make it very difficult to implement a longterm association strategy. One trend worth highlighting is a closer cooperation in areas such as climate change, both in terms of mitigation and adaptation. The Madrid Summit echoed this emphasis, not just in the Declaration, but also in the Action Plan and the subregional mini-summits. The signing of the Association Agreement with the SICA (Central American Integration System) marks real progress for ODA in this aspect too. The ICI+ is mentioned as a revised financial instrument for cooperation with industrialised countries (proposed by the European Commission), permitting the financing of noneligible activities such as ODA for developing countries, which may incorporate the Latin-American countries. However, the lack of one or several clear interlocutors which represent the interests of the entire Latin American region makes it difficult to define shared objectives in the ODA pillar. In addition to this, there is the financial and monetary crisis in the EU that poses a serious threat to the countries closest to LAC, namely Spain and Portugal. The present reality had an impact on the Madrid Summit and in part accentuated, rather than overcame, the lack of clarity surrounding the common objectives (Malamud, 2010). Align summits with MDG? Traditionally, the priority areas for community cooperation have comprised health, education, humanitarian aid, food safety and gender issues. As part of a Global Action Plan, the Commission has commissioned studies to promote progress in attaining the MDG in these areas. It is highly possible that such a gathering would coincide with the geographical concentration in the countries of Sub-Saharan Africa, and in the best of scenarios in Central America. In any case, the social agenda appears to have opened the way in the majority of Latin American countries during the years subsequent to the failure of the policies of the Washington Consensus, by offering opportunities for alignment with the MDG to the EU s development policy and summits. The summits have highlighted the fact that, in spite of strong agreement on the objectives for reducing poverty, there is not always agreement on the most suitable instruments. However, it is possible to identify starting points for a clearer definition of objectives that go beyond mere assistance to programmes for fighting poverty and humanitarian aid, and which take into account the significant growth in both regions, not only in overcoming global imbalances be they commercial or financial but also in the better handling of global assets. The economic success and, in more than a few cases, the technological advances made by some middle- and above-average income Latin American countries give reasons for rethinking development 29

31 Policy Department DG External Policies cooperation with this region, especially if contrasted with the social and food situation of other regions of the world. Abandoning the ODA with LAC may not necessarily be incompatible with the interests of the EU. Particularly at times of severe crisis such as those which Europe is currently experiencing and the concomitant scarcity of financial resources, the easy answers may have undesirable collateral effects. A broader vision of development cooperation advocates against the suspension of cooperation. For the EU, new challenges have arisen for cooperation with LAC that need to be viewed through the optic of shared interests. The following examples should be mentioned: social security, environment and protection of resources, migration, access to public assets, etc. The implications for the EU of a low-intensity commitment in the LAC development agenda should not be forgotten. As with other multilateral institutions, the EU could perform better as a global actor for example, as a member of the G-20 if it establishes a cooperation alliance with middle-income countries committed to the agenda against poverty, which at the same time would allow it to evaluate the experience gained for other contexts. German cooperation used the term anchor countries in reference to dynamic economies that could adopt a stabilising role in certain regions. Brazil, Argentina and Mexico have undoubtedly growing importance when it comes to handling the European cooperation agenda in the region. However, this means arriving at points of convergence where it is possible to apply the necessary measures for the mutual convenience of both regions. It also means that a consensus must be arrived at in delicate areas such as trade and investments, areas where up to now discrepancies have existed. 1.2 Review of external cooperation instruments and the introduction of new financing mechanisms For the current period, the main legal and financial instrument for regulating EU cooperation with LAC is the Regulation of the European Parliament and Council for establishing a Development Cooperation Instrument (DCI) 8. Three major strategic lines of assistance are established under the framework of the Lisbon Treaty. These consist of enlargement, neighbourhood and development. The Latin American region is clearly situated in the strategic line of development, since it is neither a neighbour nor an EU entry candidate. EU assistance is administered through agreements on various levels: 1. At individual level, with countries in the region, through bilateral cooperation programmes; 2. With the three subregions (Andean Community, Central America and Mercosur); 3. With the whole of Latin America, through regional programmes such as EUROsociAL, AL-INVEST, EURO-SOLAR; 4. Some special projects can be financed through thematic programmes. Country Strategy Papers (CSPs) and Regional Strategy Papers (RSPs) are, in our opinion, the most appropriate starting point for horizontal cooperation. The EU has used them to inaugurate new dimensions of its cooperation. Both of these instruments are drawn up through a process of dialogue with each recipient country s national government and other relevant actors. They define the specific objectives and the sectors of intervention of EU cooperation. To date, however, they have not been 8 The Development Cooperation Instrument (DCI) was adopted by the European Parliament and Council in December 2006 and in its remit it covers the region of Latin America. 30

32 A new European Union development cooperation policy with Latin America sufficiently applied to society in general, so as to make demands of civil society as well as other actors such as academia, the press, local authorities and the private sector.. All indicative programmes are transformed into Memoranda of Understanding between the European Commission and each country in question (see: EuropeAid, 2010: 18). Multiannual Financial Framework Promoting social cohesion and supporting regional integration stand out as the primary objectives defined on the basis of the conclusions of the EU-LAC Summit in Vienna in 2006 for this quinquennium. 9 In addition to these issues, the DCI also includes governance, higher education and sustainable development. The DCI defines geographic areas and specific objectives based on the general objective of European cooperation. However, the discrepancy that arises between the unilateral definition established according to Community rules and instruments (DCI and CDT) and the process of biregional EU-LAC summits, marked by notable asymmetries and by demands for more horizontal relations remains to be resolved (Sanahuja, 2010d; 18). Not infrequently, the summit process raises questions about the policies already established by Community instruments. Bringing the ODA of the EU into line with the demands of the LAC countries and with the region as a whole is a significant challenge for the EU. In the current fiscal period, ODA comes under the heading of 'The EU as a global partner', which, for its part, covers 5.7 % of the total budget. The financial framework for implementing this Regulation over the period amounts to EUR 16.9 billion EUR 10.1 billion for geographical programmes, EUR 5.6 billion for thematic programmes and EUR 1.2 billion for ACP (Africa, Caribbean and Pacific) States that sign up to the Sugar Protocol (see diagram). Out of the resources allocated for geographical programmes, LAC is currently provided with EUR billion (see Table Annex IV). 9 For further detail, see the relevant chapters of this study. 31

33 Policy Department DG External Policies For the period, the international framework for the LAC resources programme was formed by the Joint Declaration on the European Consensus on Development of 2005 in regard to the MDG, and the Declaration of Vienna from the 2006 summit, which defined three areas of priority for the Strategic Partnership: multilateralism, social cohesion and regional integration. The priorities are also based on the combination of various instruments (seven large thematic programmes and national and regional programmes). There are in total 21 programming documents 17 strategies for countries, three for subregions and one for the region as a whole with the following priority areas: social policies, institutional capacity and the rule of law, regional integration, the environment, disaster prevention and integrated rural development (EU, 2007, E/2007/1417). A brief synopsis of the instruments is shown in the table below. At the Lima Summit in 2008, new challenges were identified such as climate change, migration, drugs, energy and trade assistance, which is a topic of increasing relevance for Latin America. The EUrocLima Programme was also established, starting out in 2010 with a total budget of EUR 5 million. Another programme with transversal climatic guidelines is the Latin American Investment Facility (LAIF), which will pool together grant resources from the Community and possible additional grant contributions from the Member States. The new environmental and climate change related instruments appear to gather strength in the common interest agenda, which ties in with energy use and the promotion of renewable energies. Latin American countries could assume a positive role in encouraging low-carbon development by promoting renewable energies. 32

34 A new European Union development cooperation policy with Latin America The European Union: Regional Cooperation Programme with Latin America, Programme Objective Total a) Social Territorial Cohesion URB-AL Exchange experiences with local collectives in Europe and Latin 50 America about specific subjects and problems relating to local urban development. EUROsociAL Increase social cohesion through public policies on education, 41 health, justice, tax and employment. COPOLAD Enhance the capacities of the actors with responsibility in matters 6 relating to drugs and encourage the process of elaborating policies in the fight against drugs. EUROSOLAR/ EUROCLIMA Share knowledge, encourage structured and regular dialogue at all levels, and ensure synergies and the coordination of current and future actions. 10 b) Regional integration AL-INVEST Promote the internationalisation of SMEs in collaboration with 50 European Improve the development of the Information Society and combat the digital divide. 22 c) Latin American Investment Facility (LAIF) Mobilise additional financing for beneficiary Governments and public institutions to make crucial investments (replace a) and b)) d) Higher learning and Mutual comprehension ALFA Promote Higher Education through cooperation between 74 universities from different regions. ERASMUS MUNDUS Promote Higher Education through grants and academic 42 cooperation. Mutual understanding Improve the understanding of Latin American decision-makers with regard to European Union policies being developed in Latin America. 1 f) Reserve and others Source: ECLAC based on the European Union (2009) Mid-Term Review and Regional Indicative Programme for Latin America, consulted on 13 April The negotiations on the multiannual financial framework (MFF) are of vital importance to the future of development policy with the MIC, particularly with Latin America countries. ODA is included in current financial perspectives under Heading 4: External actions. Decisions about such essential aspects as amounts, sectors and the content of instruments will be the subject of complex debates, given the current fiscal situation of the Member States, which also affects the financial situation of the Union. In the draft budget presented by the European Commission, Heading 4 'The EU as a global actor' will see in the best-case scenario the lowest growth (0.8 %), while the average growth under all other headings will be in the region of 4.9 %. The Commission also proposes a reduction of EUR 88.5 million in the amount allocated for cooperation instruments, especially for geographical programmes such as the one that concerns us here (see ODI/DIE, etc.). At the same time an increase of EUR 100 million is proposed for the two regions covered by neighbourhood instruments for Eastern Europe and the Mediterranean (see Gavas, 2011). In recent agreements, there has been a strong tendency to emphasise programme-based aid within the framework of poverty reduction strategies (PRS). This is relevant to Bolivia, Honduras, Nicaragua and Guyana. It is highly likely that with the end of the debt relief processes in the framework of the HIPC initiative, the PRS will become less dynamic. In fact, they were not the reference framework for ODA in middle-income countries. Also of great relevance is general budget support (GBS) and sector budget support (SBS). Programme-based assistance represents more than 5 % of the aid intended for LAC. This

35 Policy Department DG External Policies is because the region offers greater capacity for absorption than Sub-Saharan Africa. If the dynamic for encouraging aid efficiency is sustained, the programme-based aid instruments can be expected to gain greater importance in the region (see Sanahuja, 2010d). The Latin American Investment Facility (LAIF), created in 2009, is a new mechanism for promoting social and territorial coherence and regional integration. Between 2007 and 2010, these themes were promoted in separate programmes. LAIF is a blending category instrument which aims to mobilise additional funding by stimulating the beneficiary governments and public institutions to make crucial investments, which, without the support of LAIF, could not be independently financed by the financial market or by the financial bodies for development (see ECLAC, 2010f). The LAIF could support different types of operations, including: (a) subsidies to cofinance investments in public infrastructure projects; (b) financing for loan guarantees; (c) aid for financial interest subsidies; (d) technical assistance; and, (e) risk-capital operations. Eligible financial institutions consist of European financial institutions for multilateral and national development and the Latin American financial institutions where the Member States of the European Union provide capital (ECLAC, 2010f). EU-LAC: A graphical summary of the subregional association processes As part of the Aid for Trade initiative, the European AL-INVEST deserves mention as a programme aimed at improving the international economic insertion of the region. For this purpose, Latin American SMEs are supported through the internationalisation process. The objective of the current phase IV of the programme is to encourage the Latin American SMEs to become the driving force for local development. To this end, the programme offers the following benefits to SMEs and other participating 34

36 A new European Union development cooperation policy with Latin America organisations such as market studies, business missions, technological gatherings, technical support missions, thematic seminars, internships, and training activities. Phase IV is being implemented by three subregional consortia: Central America-Cuba-Mexico, the Andean Region and MERCOSUR, Chile and Venezuela. All three consortia have the support of the European Consortium for Coordination and Services, led by the Association of European Chambers of Commerce and Industry (Eurochambres). The Seoul Consensus on development in the context of the G-20 meeting in November 2010 places the emphasis on supporting the economic infrastructure. Here, again, some encouraging results can be hoped for. 1.3 EU Development Policy towards Latin America in the context of the economic crisis in the discussion about aid for Middle-Income Countries The EU committed to a collective increase of ODA in 2002 during the European Council meeting in Barcelona in March Those commitments were later broadened and approved by the European Council in 2005 with a view towards the first UN summit where the initial review of the attainment of the MDG was made. It was at this point that the EU and its Member States agreed on a phased plan to attain 0.7 % of the GNI until 2015, with a mid-term goal of 0.56 % for In April 2010, the Commission adopted the development package during the global economic crisis which contained two fundamental reports: the twelve-point EU action plan in support of the Millennium Development Goals and the Progress Report on European ODA in Both initiatives represent an historic opportunity for all Member States, above all for the so-called EU15 in reference to the MDG. However, the Commission s ambitious goals had already been toned down by the Council s conclusions of 14 June 2010, which served as the basis for the EU s official position at the UN Summit on the MDG in September 2010 in New York. Indeed, the Council eliminated the most important measures proposed by the Commission for achieving the target of 0.7 % of the GNI which sought more binding mechanisms to ensure compliance with the joint challenges by maintaining a fair distribution of the different loads, particularly among the largest donors (Morazán/Koch, 2011). Phased plan for increasing ODA Who? When? Target? EU % ODA/GNI EU Mid-term goal 0.56 % ODA/GNI EU % ODA/GNI EU Mid-term goal 0.17 % ODA/GNI EU Member States Agreed in % ODA increase for Africa EU Member States % of GNI for the MIC Source: own development. In the report, the EC states that the negative economic growth rates in the EU as a result of the crisis and the austerity measures introduced by the Member States resulted in the reduction of ODA. The low growth of GNI combined with greater public spending has led to cutbacks in the spending on development cooperation, as shown by the graph below. All of this makes for a negative trend in meeting the objectives proposed for attaining the MDG. On the other hand, although the ODA amounts have not been cut back, in areas where there was little or no economic growth the aid may be increased as a percentage of the GNI without necessarily implicating additional resources for receiving countries (see SEC (2011) 500 end; 25). 35

37 Policy Department DG External Policies Source: European Commission (2011b): Accountability Report 2011 on Financing for Development Review of progress of the EU and its Member States What has happened with the ambitious agenda of the Consensus in its first five years? From the quantitative point of view, the balance is, in a manner of speaking, negative. In 2010, the EU Member States did not manage to meet the intermediate target (0.56 %), reaching merely 0.42 % of ODA/GNI. This implies a default worth in the region of EUR15 million. As might have been expected, considerable differences remain in the commitment of the Member States. The Scandinavian countries and the Netherlands are maintaining their commitments, while countries such as Italy and even Germany and Spain have reduced theirs, which had been increasing. The reductions further undermine the principle of fair distribution of the load, which in fact is a voluntary commitment within the EU. Unless something extraordinary occurs and the current situation does not give any indication that it will the EU will not meet the target of 0.7 % by The risks of a significant reduction in ODA to LAC are enormous and have grown even larger as a result of the political and economic crises in North Africa, a neighbouring region of the EU and also of enormous importance as a source of migratory flows. Considering the enormous dispersal of the aid (see OECD), what little progress has been made in the division of the work, and the previously mentioned effects of the crisis, we are unlikely to see an increase in EU involvement in LAC. So it appears evident that the negative effects of the economic and financial crisis will affect the meeting of targets for increasing the aid for poor countries. In view of the priorities established, this has particularly serious implications for the geographical areas, like LAC, that have ceased to be a priority for the ODA in Europe. What level of progress has LAC made in attaining the MDG? What role is played by LAC in the orientation of the European ODA for the MDG? The scope of the MDG in LAC For the ECLAC, insufficient progress in LAC has been posted in four of the nine evaluated challenges, corresponding to six out of eight MDG. Should the observed trend persist, the region is not going to 36

38 A new European Union development cooperation policy with Latin America attain those milestones. This is the case with milestones for hunger (Goal One), culmination of primary education (Goal Two), gender parity in the parliaments as the principal indicator of gender parity and the empowerment of women (Goal Three), and maternal mortality (Goal Five). Latin America and the Caribbean are, by contrast, firmly on the path towards attaining the targets for extreme poverty, hunger, infant mortality and access to drinking water, and basic hygiene (see ECLAC, 2010a). The least developed Latin American countries Bolivia, Guatemala, Haiti, Honduras and Nicaragua are not only the ones that present the highest levels of extreme poverty, but also have not sufficiently reduced it so as to be on the way to attaining the target. In addition to these countries, Colombia, El Salvador and Paraguay also show a high percentage of the population living in conditions of extreme poverty. On the other hand, in countries with high human development Chile, Costa Rica and Mexico greater progress has been made in attaining that goal, and in the cases of Argentina and Uruguay, countries where levels of extreme poverty are low, little or no progress has been made. The group of countries with medium-to-high human development include the foremost example of Brazil, which together with Chile, is the only one to attain the goal, while Peru is close to achieving it. ECLAC (2010a): El progreso de América Latina y el Caribe hacia los objetivos de desarrollo del milenio (The progress of Latin America and the Caribbean towards the Millennium Development Goals). Some progress has been made in overcoming poverty in places where focused social programmes have been implemented in a conscientious manner, thanks to which beneficiary families have received direct financial support. Such conditional transfers require, as an example, beneficiary families to ensure that children regularly attend school. In Chile, this occurred through the Chile solidario [Solidarity Chile], in Brazil with the Bolsa Familia [Family Pack] and in Mexico through the Oportunidades [Opportunities] programme, to mention but a few examples. In 2009, more than 22 million families in 17 Latin American countries received direct transfers. The majority of the Latin American states increased their social spending in recent years. Moreover, counter-cyclical social programmes were implemented in the course of the world crisis of the years (ECLAC, 2010a). LAC: Extreme poverty and total poverty, (in percentages and millions of people) Source: ECLAC (2010a): El progreso de América Latina y el Caribe hacia los objetivos de desarrollo del milenio (The progress of Latin America and the Caribbean towards the Millennium Development Goals). 37

39 Policy Department DG External Policies However, in spite of these successes, in all countries there are population groups which are being left behind in the fight against poverty, especially children, women and the indigenous population. This leads to an increase in major inequality. The EU could encourage greater efforts to improve living conditions for the poorest. For this purpose, it is important that the policies for fighting extreme poverty are not restricted to the sphere of monetary transfers. Aside from these, it is important that shortages and shortfalls are dealt with in the many aspects covered by the Millennium Development Goals, in particular polices focused on attaining the goal of full and productive employment and decent employment for all. This strategy would be aligned with the inclusive growth vision that the Commission has formulated in its Green Paper on EU development policy for inclusive growth and sustainable development. A strategy of this kind makes it possible to modify the MDG commitment to suit the specific conditions of the MIC. The discussion about the ODA towards the MIC is not a new one (see Alonso J. A., 2006), however it acquires enormous relevance in the context of the economic crisis that is having particular impact on OECD member countries (see Glennie, 2011). The manner in which the EU resolves the dilemma of the growing geographical focus of ODA and the necessary commitment to the MIC is of vital importance. Up to now, ODA has been a fundamental pillar of the Association Agreements that the European Union signed with Central America, Chile and Mexico, and this has been made manifest in a range of areas. Initially, and logically, it was believed that the twelve-point action plan approved in April 2010 should serve as the basis for the 2010 EU-LAC Summit. However, commitments of ODA to the region have not surpassed the limit of EUR 350 million annually, and payments have remained at around EUR 300 million during the past three years (see Euro paid, 2010, p. 19). The EU has great importance as an actor in achieving the MDG in the region. As the third most important donor to Latin America, it accounts for about 15 % of total ODA which is allocated to the region, and about half of that is classified by CAD as multilateral aid. When bilateral support from Member States is added up, the EU is LAC s first donor. For LAC, the case of Spain is particularly important because on account of its fiscal crisis it had to announce a cut of EUR 800 million over the coming years, whereas it had been posting substantial increases in ODA. However, the importance of European ODA in meeting the MDGs in LAC is not merely quantitative. As is well known, the MICs of LAC pose a challenge for the MDG agenda, precisely because the desired results entail much more complex cooperation processes than the traditional ODA instruments. The lasting inequality that is a characteristic of the continent is one of the major obstacles in attaining the MDG in LAC. The effects of global warming are to be felt in the majority of Latin American countries, which only exacerbates the problems of poverty and vulnerability. It would be an error if the EU oriented its ODA to LAC solely in compliance with an MDG agenda based on a strictly top-down relationship. On the contrary, development processes in Latin America are too complex and require increasingly horizontal relationships, in spite of the outstanding asymmetries between the two regions. Improvements in areas such as schooling and the reduction of maternal and child mortality, in many cases require not only input in the form of infrastructure, but also improvements in the institutional sphere. Here, ODA could fill an enormous gap. On the other hand, many of the innovative instruments currently under discussion have enormous potential for use in LAC. It is obvious that many Member States have begun the withdrawal from LAC precisely because the economic successes of the continent contrast with not very encouraging results in Sub-Saharan Africa. This withdrawal could have undesired spin-off effects, particularly if they are not supplemented by the adequate focus on the MDG8. This objective provides a global partnership for development which 38

40 A new European Union development cooperation policy with Latin America could be easily aligned with the so-called EU LAC strategic alliance. This implies, however, that rather than a sudden withdrawal, LAC needs the three pillars of the strategic association to be treated differently, so that the objective of reducing poverty, which is in the shared interest, can be achieved. To accomplish this, it is necessary for the EU to recognise strategic areas of mutual interest in order to attain the MDG. One of these refers, for example, to security issues such as drug trafficking, urban violence, political polarisation or the lack of adaptability vis-à-vis global climate change. Both aspects have a direct influence in the fight against poverty and require international responses that differ from the outlook on development currently prevailing in the European Union. The MDG8 is a greater challenge for the EU in LAC and what it offers, moreover, for both regions is the horizontal relationship. 1.4 Responding to the challenges of policy coherence for development and the MDG/Accra Agenda for Action With the Lisbon Treaty, the coherence of development policies 10 has come to occupy a more central place in EU foreign policy, becoming a legal requirement 11 both for the High Representative and for the Commission. The European Consensus on Development emphasises that the commitment to promoting policy coherence for development, based upon ensuring that the EU shall take account of the objectives of development cooperation in all policies that it implements which are likely to affect developing countries, and that these policies support development objectives. (S. 2) The document consolidates the definition of consistency by indicating the importance of how the different policies for development in the strictest sense contribute to the efforts of developing countries to attain the MDG (S. 6). In 2004, the Council decided that the common structure of the national reports on MDG and the EU synthesis reports should contain a separate section on policy coherence for development. The Communication from the Commission to the Council, the European Parliament and the European Economic and Social Committee emphasises that EU policies in areas such as trade, agriculture, fisheries, food safety, transport and energy have a direct bearing on the ability of developing countries to generate domestic economic growth, which forms the basis for any sustained progress towards attaining the MDG. (European Commission, 2005a) It should be highlighted that over the last five years, the EU has succeeded in establishing ex ante and ex post mechanisms, including impact assessments. In the twelve-point plan, five global challenges were chosen from among the working programme in relation to PCD: trade and finance, climate change, food safety, migration and security. The Green Paper on EU Development Policy discussed in 2011 reiterates the objectives for coherence, previously mentioned, and a proposal is made to use the PCD Working Programme in the most proactive way and in a stage prior to preparing new initiatives. 12 For the EU, the PCD is very closely related to attaining the MDG8 13 which refers to promoting a partnership for development. It is no secret that in spite of having established strict mechanisms for 10 The OECD defines the coherence of development policies as follows: The coherence of development policies means working in order to ensure that the objectives and the results of development policies of a government do not become undermined by other policies by the same government which affect developing countries and that those policies support development objectives wherever possible. 11 Article 208 of the Treaty on the Functioning of the EU: The Union shall take account of the objectives of development cooperation in the policies that it implements which are likely to affect developing countries. 12 See Morazán, P. (2011) 13 Objective 8: Develop a global partnership for development. Indicators: a. Develop further an open, rule-based, predictable, non-discriminatory trading and financial system. b. Address the special needs of the least developed countries. c. Deal comprehensively with the debt problems of developing countries. d. In cooperation with the private sector, make available the benefits of new technologies, especially those relating to information and communications. 39

41 Policy Department DG External Policies improving the coherence of the development policy 14, the EU does not always show the greatest results, especially with regard to the commitments made concerning trade and development. In view of the fact that there is much room for interpretation, it is worth making a critical evaluation of certain aspects relating to coherence. For example, objective 8b states Develop further an open, rule-based, predictable, non-discriminatory trading and financial system 15 The EU is still the largest provider of foreign direct investments (DDI) in LAC (CEPAL, 2011a). Nevertheless, the annual net flows of DFI received from the European Union have shown a rather declining trend and greater vulnerability than those from the United States (CEPAL, 2011a). In terms of foreign trade, there was an increase in Latin American and Caribbean exports to the EU, making the most of the increase in prices of the large majority of raw materials. LAC exports to the EU have increased by 72 % in the period prior to the crisis, while the LAC imports originating in the EU increased by 68 % (SELA, 2011). The international crisis engendered disaster for interregional trade (SELA, 2011). 16 It should be noted that, in general, EU-LAC interregional trade is characterised by low growth which contrasts with the growing importance of trade of both regions with other areas, Asia in particular. The European Union has diminished in importance in terms of Latin American trade over the last thirty years. As a result of this, the EU has declined in the hierarchy of the most important trade partners for almost all LAC countries (CEPAL, 2011a). Nevertheless, as correctly indicated by ECLAC, there is a window of opportunity for stimulating the strategic alliance of Latin America and the Caribbean with the European Union. This includes, among others, the following features: greater growth of the LAC market can help stimulate inclusive growth in the EU; strengthening of bi-regional value chains; climate change, and the spread of technologies that help protect the environment, etc. Positions found in major global themes can be detected, such as the reform of the international financial system. The presence of the EU and three Latin American countries in the G-20 may be an opportunity to find common ground in this area, so that PCD can be implemented jointly. The insistence of Latin American countries on a deeper macroeconomic dialogue is a symptom of the existing concerns. The establishment of the LAIF is a positive sign of PCD. However, without a renovation of the international financial architecture, the effects of the LAIF could be very limited. Agriculture is an area where the EU has enormous problems in applying a PCD. There is enormous asymmetry in the trade of goods between both regions: Europe mostly exports manufactured goods to LAC, while LAC s exports largely consist of primary products. As is well known, in this respect, the CAP has been a cause of conflict between the two regions, whether in the context of the Doha Round or the negotiations for Association Treaties, particularly with Mercosur. Indeed, the breakdown of the Doha Round became a serious obstacle for concluding these Association agreements. Certain studies showed that LAC could benefit from the liberalisation of European agricultural markets (Giordano et al, 2009, pp ). There have been some positive signs: The EU offered agricultural concessions at the Doha Round which were, however, rejected. Moreover, the PCD programme places an enormous emphasis on CAP reform (SEC, 2010, p. 21). These efforts have been in a circumspect manner, since the EU made similar promises in the context of the Uruguay Round that ultimately went unfulfilled. As is well known, In 2009, imports from the EU have seen a decrease of 35 % in the annual rate against an increase of 10 % in the previous year while exports from LAC to the EU have been reduced by 27 % compared with an increase of 19 % in (SELA, 2011). 40

42 A new European Union development cooperation policy with Latin America in the majority of LAC countries a great portion of the population depends on export farming (CEPAL, 2010f). In the area of climate change, there are also potential conflicts with MDG 7a and 7b to be dealt with in the PCD. The 2009 Renewable Energy Directive (RED) of the EU was subject to serious criticism (Rosillo- Calle et al, 2009, p. 68) which attributed this instrument with the blame for deforestation in LAC soyaexporting countries. The RED established the goal of getting renewable energies to contribute at least 10 % to the demand for transport energy. 17 One of the most important sources of such renewable energy is biofuel, of which 80 % is made up of biodiesel (Rosillo-Calle et al, 2009, p.68). In 2010, more than 60 % of biodiesel imports came from Argentina. Biodiesel imports from Brazil were recently approved resulting in an expected increase from this country (Bloomberg, 2011). ODA: The Subjects of the Summits The problem with biodiesel from Argentina and Brazil is that is comes from soya seeds and soya farming has adverse effects on sustainable development. Firstly, soya cultivation requires arable land and this is leading to the deforestation of the Brazilian Amazon, to give one example (Barona et al, 2010). As it is single-crop farming, soya production also restricts biodiversity. The negative social consequences of soya production outweigh the positive effects: for every job in soya production, 11 people are displaced 17 EU (2009) Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of the use of energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC [online]. Available at: [Accessed 4 July 2011]. 41